Noonan set to cut income tax in three-year package

Finance Minister Michael Noonan TD; the state's finances are in their best shape since the crash

A CUT in income tax rates is expected to be included in a three-year plan to provide relief to workers in next week's Budget.

But it is not yet clear if the reductions in the marginal rate of 52pc - made up of 41pc income tax, 7pc PRSI, and 4pc USC - will kick in next year or in 2016 and 2017.

Negotiations are also ongoing on the spending cuts in Budget 2015 with Health Minister Leo Varadkar still at odds with Public Spending Minister Brendan Howlin.

Mr Varadkar is looking for an extra €500m to give him the same amount of funding as will be spent by the health service this year, when the overrun in spending is taken into account.

But Mr Howlin was insisting the health service will have to make do with the same estimate as it received this year before the overrun kicks in. He is now understood to have moved towards an increased spending estimate, but is still well short of Mr Varadkar's demands.

Both sides are said to be "playing hardball" with varying positions being outlined.

A number of spending areas have yet to be signed off on, including Social Welfare, Education and Health. The tax package has yet to be signed off on by the Coalition.

negotiations

The Government is still trying to work out how to deliver tax relief to middle income earners next year without giving a knock-on benefit to high earners.

The Department of Finance is working out various examples of how different changes to tax rates, bands and credits will affect workers. The negotiations will intensify this week ahead of the delivery of Budget 2015 on October 14.

Taoiseach Enda Kenny has signalled a preference for a cut to the rate of tax as he believes the 52pc rate acts as a disincentive to work and investment.

However, the Coalition parties have not yet agreed the method of delivering relief.

At the moment, workers begin paying tax at 52pc once they earn more than €32,800. The Government is clearly planning to ease the burden on middle income earners but there are differing views around how to achieve this measure.

"Once you deal with the bands, is there scope to deal with the rates? It's not clear yet," a minister told the Herald.